Market Comments

No matter what I write regarding Bush or Washington or politics, I receive a
load of angry e-mails accusing me of stupidity, ignorance, prejudice -- even
treason. Of course, some people must be interested in what I think in a kindly
way. I'll tell you a secret -- you've got to have thick skin in this business.
Luckily, I do.

Actually, criticism doesn't particularly bother me. After all, I've survived
a Depression childhood, a mastoidectomy, World War II, a double hernia operation,
a heart attack, a quintuple by-pass, a stent, two motorcycle crashes, five
kids one of which is autistic, two divorces -- and guess what, I'm still here,
baby, I'm still showing up.

But I'll give you a rest. Let's just talk about the stock market. After all,
I've been studying and wrestling with the market monster for 55 years, and
happily I've picked up some knowledge and experience along the way. But wait
-- I'll admit it, I'm still an amateur in the market -- but at least I'm still
learning.

Ever since I started writing about Dow Theory back in 1958, subscribers have
been telling me that the railroads were an outmoded relic -- writing to tell
me that "The rails are finished. Who the devil needs an outmoded Rail
Average?"

So finally, in January 1970, Dow Jones saw fit to modernize the Rail Average.
They added airline and trucking stocks and changed the Rail Average to the
Transportation Average. A reasonable move. And it ended a lot of criticism.

Currently, some rails are doing OK, the trucks are doing even better, but
the poor airlines are not doing well at all. Actually, a lot of the airlines
are facing bankruptcy.

The fact still is, however, that the companies in the Transportation Average
move the goods. One way or another the goods have to be shipped from the manufacturers
to the stores. And people still travel, and they don't do it by hitch-hiking
-- many take a train or a plane, so that traveling is transportation too (all
right, personally, I don't travel any more, I can't take the frustration, but
I gather that a lot of people still do travel).

The funny thing is that the Transportation Average is still a valuable indicator,
and there have been many periods when the Transportation Average has acted
better than the Industrial Average. So old-timer that I am, I watch the Transports
with an eagle eye.

So far, the Transports lagging is just a "fly in the ointment," but
if the Dow moves out on the upside the question of whether the Transports choose
to confirm becomes more important.

At this point, the stock market remains in oversold territory. Ordinarily,
this should call for a higher market, so the action of the market over the
next few days or even over the next week or so will be both informative and
important.

As you know, I consider the action of the D-J Industrial Average to be the
KEY to the whole long-term market picture. The Dow is the "Big" Average,
the one stock average that it watched around the entire world.

This bear market will only end in black bearishness, exhaustion of selling,
and great values in stocks. We are nowhere near that kind of market, and it
may take years before we do see a market with all the characteristics of a
major bear market bottom.

However, there should be at least one major, profitable bear market rally
prior to the bear market's final low. Naturally, I'll be watching for signs
of such a rally. But to get to that rally, we first have to reach an important
sold-out bottom. We have not seen such a bottom yet.

So what should our investment position be at this point? Gold, gold shares,
and basically cash.

Question -- What is the meaning of Fed Chairman's recent comment about gold?

Answer -- It sounded to me as though Greenspan, nearing the end of his term
as Fed chairman, in a weak moment decided that maybe it was time to turn honest.
Greenspan knows that a fiat currency is a phoney currency, and that no fiat
currency ever created has served as a store of value. So below I've included
a revealing recent Greenspan quote, a sort of nostalgic longing for a world
in which gold serves as official money -- this as specified by the Constitution
of the United States.

This is the actual Greenspan quote --

"Although the gold standard could hardly be portrayed as having produced
a period of price tranquility, it was the case that the price level in 1929
was not much different, on net, from what it had been in 1800. But in the two
decades following the abandonment of the gold standard in 1933, the consumer
price index in the United States nearly doubled. And in the four decades after
that, prices quintupled. Monetary policy, unleashed from the constraint of
gold convertibility, has allowed a persistent over issuance of money. As recent
as a decade ago, central bankers, having witnessed more than a half-century
of chronic inflation, appeared to confirm that a fiat currency was inherently
subject to excess."

Note that Greenspan doesn't say that the Federal Reserve was inherently prone
to excess, he just says that a "fiat currency" is subject to excess.
In doing so, he avoids attacking the Fed itself, the obvious cause of the excesses.
And Greenspan neatly avoids taking any blame for the "over issuance" of
money, although Greenspan will go down in history as the greatest inflationist
in US history.

It's as if Greenspan is wrestling with his past, but can't quite come to terms
with his own wretched performance.

Richrd Russell began publishing Dow Theory Letters in 1958, and
he has been writing the Letters ever since (never once having skipped a Letter).
Dow Theory Letters is the oldest service continuously written by one person
in the business.

Russell gained wide recognition via a series of over 30
Dow Theory and technical articles that he wrote for Barron's during the late-'50s
through the '90s. Through Barron's and via word of mouth, he gained a wide
following. Russell was the first (in 1960) to recommend gold stocks. He called
the top of the 1949-'66 bull market. And almost to the day he called the bottom
of the great 1972-'74 bear market, and the beginning of the great bull market
which started in December 1974.